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Traders May Not Have Expected Bitcoin’s Rise to $10K, Current FOMO Could Be Signal to Exit: Futures Friday
Futures Friday is a weekly review of quarterly Bitcoin futures on OKEx.
By late Thursday (UTC) Bitcoin’s price had crossed $10,000, a level it last saw on Feb. 24. In the process, the leading digital currency broke through key resistance levels at $9,200 and $9,500.
This week's rally makes sense as Bitcoin approaches its third block-reward halving event scheduled around May 11, but is beyond what retail traders appear to have expected.
Looking at OKEx trading data, we can see that the BTC Long/Short Ratio continued to hover around 1.0 this week, indicating not many retail traders made long bets on the futures market.
Meanwhile, the BTC Basis reflects an optimistic outlook since the premium has been widening along with the price rally. Moreover, Margin Lending Ratio shows that spot market buying has been the main driver.
OKEx Trading Data Readings
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BTC Long/Short Ratio
The BTC Long/Short ratio did not pick up with the price, and instead, declined during the week, indicating that many retail traders missed this opportunity.
Currently, the ratio stands at 1.1 and may not see a drastic rise since market participants are expected to hedge their spot positions with leveraged shorts in the derivatives market.
The Long/Short Ratio shows the ratio of the total number of users opening long positions versus opening short positions. The ratio is compiled from all futures and perpetual swaps. The long/short side of a user is determined by their net position in BTC.
In the derivatives market, whenever there's a long position opened, there must be a short position opened as well to balance it. The total number of long positions must be equal to the total number of short positions. When the ratio is low, it indicates that more people are holding shorts.
The BTC Basis did enter negative territory a few times during the week but rose sharply with Thursday’s rally. The OKEx BTC Quarterly Future’s premium went from negative to $100 on Thursday before pulling back to $50, but it is still far from its March high of $400.
This indicator shows the quarterly futures price, spot index price, and also the basis difference. The basis of a particular time equals the quarterly futures price minus the spot index price.
The price of futures reflects the traders’ expectations of the price of bitcoin. When the basis is positive, it indicates that the market is bullish. When the basis is negative, it indicates that the market is bearish.
The basis of quarterly futures can better indicate the long-term market trend. When the basis is high (either positive or negative), it means there's more room for arbitrage.
Open Interest and Trading Volume
Open Interest (OI) had accumulated to 5.8 million contracts (1 contract = $100) from 5.12 million before shorts got liquidated on Thursday. As of today, trading volumes were still high, while OI is picking up again towards 5.77 million contracts.
Open interest is the total number of outstanding futures/swaps that have not been closed on a given day.
Trading volume is the total trading volume of futures and perpetual swaps over a specific period of time.
If there are 2,000 long contracts and 2,000 short contracts opened, the open interest will be 2,000. If the trading volume surges and the open interest decreases in a short period of time, it may indicate that a lot of positions are closed, or were forced to liquidate. If both the trading volume and open interest increase, it indicates that a lot of positions have opened.
BTC Margin Lending Ratio
Margin Lending Ratio rose quickly from 2.0 to around 3.5, up three weeks in a row. The ratio is now back to its highest level since mid-March, and is in line with current market observations regarding strong spot buying supporting this price rally.
The Margin Lending Ratio is spot market trading data showing the ratio between users borrowing USDT versus borrowing BTC in USDT value over a given period of time.
This ratio also helps traders to look into market sentiment. Generally, traders borrowing USDT aim to buy BTC, and those borrowing BTC aim to short it.
When the Margin Lending Ratio is high, it indicates that the market is bullish. When it is low, it indicates that the market is bearish. Extreme values of this ratio have historically indicated trend reversals.
Robbie, OKEx Investment Analyst
Over the last two weeks, I’ve maintained that shorting BTC may not be ideal before the halving. Since we now have only four days to go before the event, I expect BTC price to test the zone between $10,300 and $10,500. However, $10,500 is a key resistance and may be hard to beat.
If we take BCH and BSV halvings for reference, there is still a good chance that BTC will face a short-term drop in price after the event.
While the indicators above are not overheated right now, any FOMO from retail traders accompanied by another sharp rise in price may indicate it is time to sell.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary